Highways and Airports: the Plans Driving Investment

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A new investment portfolio is set to bring about the construction and redevelopment of a number of key areas of national infrastructure, with two of these assigned priority status: highways and airports.

A new plan for investment and concessions

Facing a deficit of US$64 billion and 13 key projects worth approximately US$6.5 billion currently facing a series of delays and problems, Chile’s public infrastructure is in need of renewed investment and strategic planning. In response, the government of Sebastián Piñera has devised a US$30 billion plan called Invierte Chile (Invest Chile) 2018-2026 to boost investment in the sector and streamline project execution. In particular, the government plans to raise US$20 billion of infrastructure investment in the next four years, with US$8 billion of this coming via concessions.

The government’s investment plan and project portfolio highlights the need to improve infrastructure across the board, from inter-urban transport systems, to the paving of more roads in rural areas, and strengthening the nation’s digital infrastructure by increasing the rural penetration of fibre optics, wireless and internet. The key to achieving the desired success is Chile’s ability to attract investment to the key sectors.

In terms of executing the portfolio, while the Ministry of Transport and Telecommunications (MTT) is overseeing efforts to redevelop the nation’s digital connectivity, the key entity in terms of bricks-and-mortar infrastructure is the Ministry of Public Works (MOP). Regarding policy, the primary tool deployed by MOP since the mid-1990s to attract investment and expertise in public infrastructure is the public-private concessions system, executed via the Ley de Concesiones (Concessions Act). For more in-depth information about the Ley de Concesiones, see here.

Concessions based on public-private partnerships (PPPs) will continue to be sort in the areas of ports, railways and water infrastructure, while the two sectors identified by the government as having the greatest investment potential and strategic importance are airports and highways. This is significant because easing congestion on the roads and in airports is critical. Indeed, in June 2018 the Minister of Public Works, Juan Andrés Fontaine, emphasised that the lack of investment in these areas generates congestion and leads to loss of competitiveness due to longer transfer times for both people and the logistics chain. Therefore, government emphasis via MOP will be on these two areas moving forward.

21st century highways and roads

At present, there are 25 intercity road concessions in operation, 1 under construction, 3 in the bidding process and 12 on MOP’s agenda. Moving forward, the the Cámara Chilena de la Construcción (Chilean Construction Chamber), or CChC, estimates that US$20.343 billion of total investment in interurban roads and US$60.776 billion in urban roads in the regional capitals will be needed between 2018 and 2027.

As such, one of the strategic goals behind the government’s investment portfolio is to upgrade the main north-to-south highway, Ruta 5, to 21st-century standards. Since many of the concessions on this stretch of road expire during the current presidential period of 2018 to 2022, the government is preparing to negotiate new concessions to ensure the construction of 1,500 kilometres of new roads. Similarly, a number of the key east-to-west highway routes, including Ruta 68 from Santiago to Valparaiso and Ruta 78 from the capital city to San Antonio, the country’s largest port, will also be renegotiated in the coming years.

Construction and redevelopment is also planned for other important stretches of highway. This includes a US$600-million tender due in 2018 for the redevelopment of Ruta 66, known as the Camino de la Fruta (the Fruit Road). This initiative will connect San Antonio with the Ruta 5 highway south of Santiago, in order to not only facilitate access to and from the port within Chile, but also improve connectivity with Argentina for the movement of goods arriving via the Pacific Ocean.

In terms of the Metropolitan Region of Santiago, home to approximately 7.1 million of the 17.5 million inhabitants of Chile, the major initiative within the existing highway investment portfolio is the ongoing redevelopment of the Américo Vespucio ring road, with two sections undergoing construction at a cost of US$1 billion each. Each concession for the two sections of the ring road has been awarded for a period of 45 years, with the first officially beginning in 2014 and the second in April 2018.

Beyond new investment in new stretches of road, the Cámara Chilena de la Construcción (Chilean Construction Chamber) has identified the need for US$323 million of investment from the private sector per year simply to maintain the intercity toll roads that are already run via concessions. That is why securing renewed investment in the nation’s roads so important. The volume of traffic in the country has almost doubled since 2010 and is now growing at 9.5 per cent per year, with an estimated 400,000 new vehicles expected to be sold and circulating on the roads during 2018 alone.

Moreover, while traffic jams and rush hour gridlock have been commonplace in Santiago for years, the fact that this phenomenon is now being repeated in other cities, particularly the larger provincial capitals, further demonstrates why authorities are pursuing new investment in this area.

As is the case in many emerging economies, the growing rate of traffic in Chile is the result of a number of factors, including the availability of cheaper cars from Asia, rising income levels, a growing middle class, and easier access to finance in the local market. However, Minister Fontaine explained in May 2018 that only about 25 per cent of the Chilean population owns a vehicle, compared to around 50 per cent in developed economies. Therefore, as the country seeks to advance along the path of development, this number is set to rise significantly, generating a set of new challenges in the future.

Airport infrastructure ready for take off

Beyond highways, the other significant beneficiary of the government’s infrastructure investment portfolio is airports. According to the CChC, this sector will require an approximate investment of US$1.659 billion between 2018 and 2027, primarily due to the need to respond to rising passenger numbers being processed in terminals.

President Piñera has called for the modernisation of the national airport network via the introduction of state-of-the-art infrastructure and technology. And these aspects are sorely needed as, much like the traffic on the roads, the use of airports is growing at an annual rate of almost 10 per cent and Minister Fontaine has stated that that nation’s airports are already operating at capacity. Furthermore, this volume of airport traffic is set to grow more as new low-cost carriers arrive in Chile over the next decade and increase competition in what is already a dynamic market, with the likes of Sky Airline and JetSmart leading the way in low-cost flights.

The landmark redevelopment project in the airport sector is the 20-year, US$700-million contract being carried by the Nuevo Pudahuel consortium to expand the country’s main airport, the Comodoro Arturo Merino Benítez International Airport in Santiago. Prior to expansion work, the capacity of the airport was 16 million passenger per year and it was having to process 22 million passengers. The project is due for completion in 2020 and will raise capacity to 30 million, although estimates are that by as early as 2022 this capacity may have already been exceeded.

Regional airports also form a key part of the investment portfolio and the government is expecting to reissue contracts for five airports that will see their concessions expire before 2022.

These moves to boost investment in national airports and highways are the key strategy of the Piñera administration to bring Chilean public infrastructure up to 21st-century standards. By doing so, Chile will take a big stride towards accelerating the flow of both people and business within its own national territory as well as across the South American region as a whole.